R C M Technologies Inc (RCMT) 2006 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for waiting. Welcome to the second-quarter earnings conference call. All lines have been placed on listen-only mode and the floor will be open for your questions and comments following the presentation. Without further ado, it is my pleasure to turn the floor over to your host, Stanton Remer. Mr. Remer, the floor is yours.

Good morning, ladies and gentlemen. Thank you for your support of RCM Technologies. Leon Kopyt will not be joining us today. He is on jury duty and performing his civic duty. I will be the moderator and host today. Along with me is Senior Vice President Kevin Miller; for Corporate Development, Rocco Campanelli of Executive Vice President of Engineering; and Jim Schappert, Vice President of IT Consulting.

I will read this script for the Safe Harbor and then we will proceed. Our presentation in this call will contain forward-looking statements. The information contained in the forward-looking statements is based upon our beliefs, estimates and assumptions and information currently available to us. The forward-looking statements relate to matters such as estimates used for developing pro forma financial information, the general health and direction of the market for IT, and engineering services. Our intentions as to changes to our product offerings, our concentration on higher margin services areas, our pursuit of strategic alliances, partnerships, clients and acquisitions, increased propensity of existing and potential clients through outsource IT and engineering functions, and anticipated operating performance and financial condition. The statements reflect our current views with respect to future events and are subject to a variety of risks, uncertainties and assumptions relating to operations and results of operations, competitive factors and shifts in market demand. If any of these risks or uncertainties materialize or if our underlying assumptions are incorrect, actual results may vary significantly from expected results. The following factors will specifically affect our ability to achieve expected results. Unemployment and general economic conditions associated with the provision of information technology and engineering services and solutions and placement of temporary staffing personnel; our ability to attract, train and retain qualified personnel who possess the skills and experience necessary to meet the staffing requirements of our customers and future customers, our ability to achieve and manage growth and select suitable acquisition candidates, analyzing their businesses accurately and integrating acquired businesses into our Company, and other risks of our acquisition strategy. Many other factors will also affect our ability to achieve expected results. The other factors we consider most pertinent are referred to in periodic reports on Form 10-K, 10-Q and 8-K that we followed the SEC. We will be happy to send you copies of these documents to you at your request. Otherwise, we encourage you to review the documents as they appear on the RCM Technology's website under Investor Relations. Thank you.

Revenues for the 26 weeks ended July 1 will be compared -- '06 will be compared to the 26 weeks ended July 2 '05. The revenues in '06 were $96 million. In '05 they were $90 million. Gross profit was $24 million compared to $21 million. Selling, general administration was $20.271 million compared to $17 million, which also included $563,000 of FAS 123(R) stock compensation expense in '06.

Depreciation and amortization was $721,000 in '06, compared to $528,000 in '05. Interest expense was $129,000 compared to $108,000. Income before income taxes was $3.079 million compared to $3.109 million. The income taxes in 26 weeks ended '06 was $409,000 which included a $1 million income tax credit compared to the $1.189 million of income taxes in '05. The net income for the 26 weeks was $2.670 million compared to $2 million. Earnings per share on a fully diluted basis was $0.22 compared to $0.17.

The income tax credit, onetime income tax credit was attributable to $0.08. For the 13 weeks ended '06 July 1 '06 compared to July 2 '05, revenues were $49 million compared to $46 million. Gross profit was $12.2 million compared to $11 million. SG&A was $10.1 million compared to $8.9 million, which had $263,000 of stock-based compensation expense included in the '06 number.

Depreciation and amortization was $368,000 compared to $268,000. Income before taxes was $1.5 million -- $1.6 million compared to $1.9 million. There was an income tax credit of $294,000 compared to '05 taxes of $707,000 because that $1 million previously mentioned income tax credit was in the second quarter.

Net income for the 13 weeks was $1.9 million compared to $1.2 million. Earnings per share on a fully diluted basis was $0.15 compared to $0.10. The cash position at the end of June was $6.9 million. Our accounts receivable was $48 million compared to $45 million. Our working capital continues to increase, was $35.5 million compared to $33 million at the end of December. Our total assets were $106 million compared to $106 million at the end of December.

Our debt at the end, senior debt July 1 was $5.5 million compared to $3.9 million at the end of December. Liabilities at July 1 were $26.6 million compared to $31 million, down approximately $5.5 million. Shareholders' equity is $79.3 million compared to $75.7 million. I will now turn it over to Kevin Miller to give you some flavor on sectorial and segment data.

Good morning, everyone. As Stanton said the sales for Q2 were just a little over $49.025 million. Broken out by sector, the information technology was $24.185 million. Engineering was $13.7 million and commercial services group was $11.14 million. The blended margins for the quarter were 24.88%. Broken out by segment, our gross margins in information technology were 29.94%. Engineering was 17.90%, and our commercial services group was 22.46%. And at this time, I'll turn it over to Stanton.

Now, we will open it up for questions, and we will bring them over to Kevin, Rocco, Jim or myself. So any questions?

(OPERATOR INSTRUCTIONS). Bill Sutherland.

Rocco, since you are there, could you give us a little update on how things are going with Bruce and possibly with other important aspects of the engineering group right now?

Sure, I would be happy to. This is Rocco Campanelli. The Bruce project has been ongoing for the last several months. We have been staffing up the last several months and delivering preliminary design packages for review to the design authority at the Bruce.

Our budget is currently on schedule, on budget, and proceeding very well. As far as other engineering aspects, our aerospace division has been growing over the past several months through work that we are doing at Sikorsky Aircraft, and we expect stability in the aerospace division. As far as the other engineering services in the U.S. power systems services is a pretty much flat at this point, and we expect that it will remain flat for the remainder of the year. Does that answer your question or --

Let me ask you to get clarification on one thing you said, Rocco, which is stability in Aero -- I thought it sounded like Sikorsky was expanding. Is there an offset to it?

No, aerospace division has been expanding for the past three months, and we expect it to continue to a ramp up, but you know that all depends on outstanding proposals that we have and what our expectation. Our expectation is to do additional work for manufacturers of equipment that are going to supply parts to Sikorsky for their new aircraft.

But those initiatives may or may not happen this year, which is I think is why Rocco is using the word stability in terms of Sikorsky. Obviously, our current activity is expected to roll through the end of the year in terms of any significant add-ons, we are optimistic about that, but we just don't know at this point. Is that pretty accurate, Rocco?

Exactly.

Those supplier agreements, they will be directly with the supplier, the Sikorsky suppliers?

Those agreements would be directly with the Sikorsky suppliers, correct. The way that would work is that it would be a proposal from the supplier to Sikorsky for an engineered product in which RCN would participate in the engineering.

I was a little surprised, your reference to the scheduling at Bruce being on track. Is it -- I realize your work, I'm sure, is on track as far as their expectations, but have you been getting the design request at the pace you expected?

When we originally developed the proposal, we expected to ramp this project up much quicker than we actually ramped it up. But when you're involved in starting two nuclear plants that were laid up for several years, the schedule is a living, breathing entity by itself because in this particular project, there is a project management team that has to do quite a bit of development, developing the plant for our work and implementing significant amount of design changes just to allow the plant to accept our design changes. So our schedule relies on six other contractors' schedules as a minimum, and it changes weekly.

In general, though, I guess things move forward.

Yes, things move forward, right.

What is the client -- in the client concentration area, I forget if you have had a 10% in recent periods, Stanton.

No. The largest, as disclosed in the 10-K, is Sikorsky United Technologies I think it was up 7%, 8% if my memory serves me correctly.

About $15.5 million last year.

Right. But everything was less than that.

We may get a 10% this year but not significantly beyond that.

And if we hit the 10% this year is because we're getting more business from Sikorsky, not because our sales are dropping.

Of course. I think that cover it for me. Thanks, everybody.

(OPERATOR INSTRUCTIONS). Nelson Obus.

I wonder if you could give us an update on your business in the healthcare area.

Kevin, do you want to handle that?

Yes. That group continues to be very strong for us. The one thing that I would -- I'm glad you asked the question -- caution everybody on is our biggest client there, which is the New York City Board of Education, pretty much shuts down for -- we get a little business there but not much over the summer months. So we will see a drop in our healthcare revenues in the third quarter of this year, somewhere in the neighborhood of $1 million to $1.3 million. Last year the health care revenues dropped I believe about $800,000 in the third quarter as compared to the second quarter.

Obviously that has nothing to do with the health of the business. That's just is what it is, the school shutdown for the summer. But we will see lower revenues in the third quarter for that group than we did in the first and second quarter.

But the overall business is just going like gangbusters. I mean excluding the natural seasonality that we have in our largest customer, the business is growing and it is expected to continue to grow. We have quite a few therapists coming scheduled to arrive from the Philippines towards the end of this year. We've got about 15 or 20 now. We could have anywhere between the end of the year and the beginning of next year, another 25 or potentially more, that will be coming over. And it is our anticipation that they will land and pretty much go right to work. So again that business is just doing really well, and there is nothing on the horizon that would cause us to believe that it's not going to continue to see some measured growth, the seasonality notwithstanding.

Okay. And just a little different kind of a question. Obviously investing in this Company has been very difficult for outside shareholders over the last couple of years. It hasn't precluded management from proposing large packages of options to the employees which culminated I think in a fairly significant defeat at the annual meeting on your option proposal. What do you take away from this and what do you -- what's your solution in terms of creating some incentive, although there are questions in my mind about whether this Company should be public?

Obviously, we respect the results that we -- of the voting results from the proxy solicitation and, obviously, a plan is not put in place. Now we are sitting back and evaluating going forward, do we put a -- propose another plan going forward of a completely different nature or some hybrid plan.

Prior to doing that, we will certainly sit down with selected shareholders to get their input as to what they would like to see and put together for continued incentives for our employees. We are not worried about the short-term -- in terms of providing incentives for employees in the short-term, that is really not a concern. We are going to be okay there.

Obviously, as Stanton said, we do need to be concerned about putting incentives together for the long-term. And when we go back to the shareholders next year, we will have -- we will learn some lessons and consult with some shareholders and consult with our advisors and come up with a plan that we think makes sense for everyone.

That would make sense. About how many do you have left? Obviously you were able to grant some up to now in '06, so I assume you have left.

At the present time is disclosed -- at the present day it's approximately 27,000. It is a de minimis amount.

Well, it's not enough to -- obviously, it is not enough to attract a group that might give you another leg on the business so it's something you have to attend to, right?

There are other ways to incentivize people. Obviously, the best way is for -- align them with the shareholders, by some stock option or restricted stock or some combination thereof. So we hear the shareholders loud and clear and we'll proceed further, as I indicated.

(OPERATOR INSTRUCTIONS). It appears we have no further questions at this time.

Okay. Ladies and gentlemen, thank you for your time and your support of RCM Technologies. We will talk in two or three months. Thank you.

Thank you. This does conclude today's teleconference. Thank you for your participation. You may disconnect your line at this time.